With the US presidential election a few days away, I felt it was important for Canadians to be aware of what would happen to Canadian trade if Trump were to become president and how to take advantage of the situation (much like how investors took advantage of the American housing market fiasco in 2008). How A Trump Presidency Affects the Canadian Economy: The NAFTA Agreement
Many Canadians do not take the risk of Trump’s presidency seriously as much as they should. It seems that many Canadians think that only Americans will suffer the consequences. Well, they are very wrong. Let me illustrate how Trump’s presidency might affect you as a Canadian.
Trump’s presidency has the potential to destroy the Canadian economy. As of today, 76% of Canadian exports go to the United States thanks to its geographic location and NAFTA (North American Free Trade Agreement). This free trade agreement allows Canada to trade goods with minimum tariffs (tax on traded goods) with the USA. NAFTA is very important for the Canadian economy. Let’s see what Trump wants to do with NAFTA.
(retrieved from https://www.donaldjtrump.com/policies/trade/)
The main focus of Trump’s policy is reducing US imports from foreign countries by jeopardizing free trade agreements including NAFTA and TPP and shift the consumption inwards. Basically, if Trump wins, NAFTA would vanish. Without NAFTA, the US government would be able to charge hefty tax on Canadian imports. This would hugely decrease Canadian exports because Canadian goods would be too expensive for Americans and Americans would start buying goods domestically: with fewer Canadian exports, Canadian companies wouldn’t receive as much revenue to drive the economy. For the average working Canadian, less money for Canadian companies mean less income for Canadian workers. Most likely, your salary could be reduced or you might even lose job.
If you are an investor or looking to invest some money, this will be a very good time to hedge yourself from the risk of a Trump presidency.
How You Can “Hedge” Against A Trump Presidency
There are several options to hedge:
- Buy gold/gold stocks.
Even investment professionals have a hard time identifying the effect of Trump’s presidency. At a time of such uncertainty, the price of gold tends to shoot up immediately after the news because of the general consensus that gold is a safe asset. You can see such phenomenon occurred right after the announcement of the Brexit vote result.
For gold stocks, I recommend Gran Colombia Gold (TSE: GCM) because the company is significantly undervalued. The stock is currently priced at CAD 0.11 (Nov 4, closing price) but the stock should be priced at least 0.35 (thus more than 300% return) with the gold price of 1300 based on my valuations and the current Company’s financials & performance. The company will release earnings on Nov 15, 2016 so I will post my updated valuations and details then.
- Buy Japanese Yen (JPY)
Japanese yen is considered “safe” currency by the investor public. Many investors tend to buy Japanese yen at a time of economic/political uncertainty. The value of Japanese yen will most likely increase immediately after the announcement of Trump’s presidency. For example, investors purchased yen when China’s stock market had a meltdown.
- Buy Fairfax Financial Holdings Stock (TSE: FFH)
Fairfax Financial Holdings is an insurance company with many investments. What makes this company stands out is that the company is fully hedged against economic/market turmoil. I would like to discuss their hedging strategy in details later on, but if you are interested, please refer to this article for now.
What are you other ideas on taking advantage of a Trump presidency? Let me know in the comments section below.